Ron Paul: The Fed and Congress Must Return to Fiscal and Monetary Sanity

The Federal Reserve announced on Wednesday that it will continue its easy credit policies – to no one’s surprise. But its statements on fiscal policy are confusing and contradictory.

While the Fed has for several years criticized Congress’ inability to get its fiscal house in order – ignoring its own responsibility in enabling the government’s massive deficits and debt – the Fed is now alarmed about the across-the-board sequestration “cuts.” But the cuts that so worry Bernanke are not even real cuts, as, under sequestration, the Federal budget will still increase by trillions of dollars over the next ten years.

The Fed’s third round of quantitative easing amounts to asset purchases of $85 billion per month, yet the federal government cutting $44 billion* over one fiscal year is considered “restrictive fiscal policy” that might slow economic growth and job creation. One month of Fed money-printing undoes more than a year’s worth of sequestration, yet Chairman Bernanke expects us to believe that “monetary policy cannot offset a fiscal restraint of that magnitude.”

If $44 billion can’t be eliminated without raising alarm, then getting to long-term fiscal stability, as Chairman Bernanke frequently exhorts Congress to do, can never happen.

The Fed, on the one hand, says that the economy needs fiscal stability, while with the other hand it enables profligate government spending. Just since the beginning of the year, the Fed has purchased nearly half of the federal government’s monthly deficits as part of quantitative easing. During QE2, the Fed bought $770 billion of government debt. It has kept interest rates near zero for six years now, giving the government a free ride on the backs of savers and those who have been responsible with their money.

The Fed’s power over the dollar enables the government to keep spending and paying its debts with cheapened, devalued, debased dollars. And the American people suffer the consequences of high prices, distortions in the marketplace, and the aftermath of burst economic bubbles created by easy credit. It’s well past time to return to fiscal and monetary sanity. The Fed and Congress should be ashamed.

*According to the CBO, the sequester only reduces spending by $44 billion this year, with the rest of the reported $85 billion in cuts taking place in future years.

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